The President's Call To Fix the Budget Process

About the Author

Alison Acosta FraserSenior Fellow and Director of Government Finance ProgramsDomestic and Economic Policy

The President's
budget, released Monday, raises the bar for fiscal discipline. By
setting spending priorities, it reduces growth in discretionary
spending to less than inflation-a cut in real terms. Moving well
beyond this commendable step, the President's budget also lays out
a plan to help get spending under control for good by fixing the
federal budget process.

As it currently
stands, the budget process does not support or promote fiscal
discipline. Quite the opposite, in fact-it actually rewards
increased spending. Beneficiaries of the vast array of federal
programs line the halls of Congress every day, pressing members for
more spending and new programs. Even worse, the annual budget omits
any mention of the federal government's long-term obligations, such
as those from Medicare and Social Security. The result is
predictable: Members ignore how their legislation affects the
budget more than a few years down the road and find it easier to
increase the burden of government on future generations than to be
fiscally prudent. In short, the federal budget process is a big
part of the spending problem, and the President is right to address
it in his budget.

Fixing the Budget Process

The President's
budget lays out a few much-needed, commonsense steps to change the
budget process and make it easier for Congress to get spending
under control:

Discretionary
spending caps. The budget proposes discretionary spending
capsthrough 2010 to limit spending. Legislation that would exceed
these limits would have to jump a higher hurdle than today-the
budget proposes a three-fifths vote in the Senate, as opposed to a
majority vote now. Any successful bill that goes past the caps but
doesn't pass the three-fifths vote would force an across-the-board
cut to wring the excess spending out of the overall discretionary
budget. Setting limits now to control discretionary spending is a
necessary first step to restore fiscal health.

PAYGO.
Long-term growth in entitlement spending, such as Medicare and
Social Security, poses the greatest threat to fiscal
responsibility. The President proposes to curtail growth in
entitlements with a modified pay-as-you-go (PAYGO) spending limit.
This would require that any increase in entitlement spending be
offset with reductions in other entitlement programs. The
alternative, mandated in years past, is increasing taxes to pay for
greater entitlements-a direct sop on the economy. Intended to
address unaffordable spending, the President's PAYGO would not
apply to tax proposals. Like discretionary spending caps,
overriding PAYGO would require a three-fifths vote in the Senate.
Legislation that causes net entitlement spending to increase
without this super-majority would result in across-the-board
reductions in other entitlement programs.

Bringing
future obligations into the budget. As stated, the greatest
fiscal threat comes not from near-term deficits and discretionary
spending, but from the long-term costs of entitlement programs that
already exist, such as Medicare and Social Security. Keeping these
programs out of the annual budget only exacerbates the problem by
encouraging lawmakers to expand entitlements and forego entitlement
reform, with its attendant up-front costs and long-term savings.
The President sensibly proposes to bring these long-term unfunded
obligations into the annual budget.

A part of doing that is with the point of order. A mandatory point
of order would raise the procedural bar for increasing the
long-term unfunded obligations of entitlement programs, giving
Members of Congress a tool to use to ward off such proposed
legislation. This is a good first step that Congress should take.
Further, Congress should include a three-fifths vote requirement to
overturn a point of order.

Addressing
emergency spending. Emergency spending has traditionally been
exempt from budget limits. This makes sense-Congress and the
President need flexibility to deal with truly unforeseen, urgent
situations, such as the 9/11 attacks and the extraordinary
hurricanes in Florida last fall. But emergency spending is no
longer a rare occurrence. Increasingly, it is used as a vehicle to
exempt routine spending from budget caps. The President's budget
would tighten the definition of emergency to restrict emergency
spending to events that are truly sudden, urgent, unforeseen, and
temporary-not routine, predictable, and ongoing. The budget also
proposes a requirement that the President and Congress agree on
each specific emergency-spending proposal to keep members from
piling on favorite programs under the umbrella of genuine
emergency.

The line-item
veto. To help restrain the plethora of special-interest items
in spending bills, the President proposes line-item veto
authority-specifically, the authority to defer new spending
to reduce deficits. Under this proposal, any time a president
determines that a new spending item is not an essential priority of
the federal government, he could redirect that item's funding to
reduce the deficit. As with previous line-item veto laws, this
would most likely face legal challenge, with the outcome uncertain.
If allowed, the line-item veto would be a powerful tool to cut
spending on programs and projects that are not meritorious enough
to pass on their own.

Making the
budget binding law. Under the current budget process, the House
and Senate attempt to craft a concurrent budget resolution that
lays out the year's spending program. Even when they succeed (not
always the case), the budget agreement never actually becomes law,
meaning that, later down the line, nothing more than moral suasion
stands to prevent appropriators from bursting their budget caps.
Giving the annual budget resolution the full force of law would
keep Congress from bypassing spending limits because it would force
across-the-board cuts in response to excess spending. Also, making
the budget resolution law would bring the president, a key player,
into the budget game earlier. Congress and the president would have
to sit down early in the process to agree on budget and policy
priorities before Congress considers budget and tax bills.

Increasing
accountability. The President's budget proposes authority for
the President to establish two new commissions to increase
accountability in the budget. The first, a "Results Commission,"
would seek to identify duplication and redundancy to streamline
specific programs identified by the President. The second, a
"Sunset Commission," would review and scrutinize programs regularly
to determine whether they fulfill an appropriate function of the
federal government.

Conclusion

The President's
proposal to trim discretionary spending is a necessary step to
bring spending under control. The next steps will require taking
even tougher tough action: addressing entitlement programs, such as
Social Security and Medicare. This will be possible only with a
budget process that rewards fiscal discipline and requires Congress
to look at the government's total obligations. Unfortunately, a
number of process-reform proposals-many similar to the
President's-were voted down in the House last month. But things
should be different this time, with the President now in the game.
Congress should adopt the President's proposals to amend the budget
process in order to pave the way for tough the spending decisions
that it will face very soon.

Alison
Acosta Fraser is Director of the Thomas A. Roe Institute for
Economic Policy Studies at The Heritage Foundation.

About the Author

Alison Acosta FraserSenior Fellow and Director of Government Finance ProgramsDomestic and Economic Policy